One of the problems that we have, particularly in high-value areas such as Central London, is people purchasing property, not as a home but as a financial investment.
Many of these investors are from overseas. They are not interested in renting the properties out to tenants (and anyway even if they did, most ‘ordinary’ people would not be able to afford them) and often the properties just lie empty.
They have been described as ‘golden bricks’ by Sadiq Khan who has strongly criticised them. High value ‘luxury’ apartments may be beneficial to the developers and a good investment for their foreign owners but they don’t do much for ‘ordinary’ Londoners.
The Tower scandal
There was a lot of adverse publicity about foreign ownership of homes in the city in 2016 after a Guardian investigation:
The investigation revealed that homes in The Tower, a 50-storey skyscraper at St George Wharf in Vauxhall, which opened in 2013, had been sold to more than 130 foreign buyers including a Russian billionaire, the former chairman of a defunct Nigerian bank and a Kyrgyz vodka tycoon. None of the 214 flats in the tower are classed as affordable, although it was built as part of a wider development that included 30% low-cost comes.
The shadow housing minister, John Healey, said the building had become “a symbol of the housing crisis” in which new homes are sold abroad as investments and left largely empty while fewer and fewer young people can afford to buy or rent in the city. He said that it “fuels people’s anger and sense of injustice”.
John Prescott was the minister who had originally granted planning permission in 2005 but
Responding to the revelations that so much of the tower had been sold off and was underused, Prescott told the Guardian it was “deplorable”.
“I was hoping that we were providing housing for housing,” he said. “We didn’t envisage that it would be given over to people investing in London. I had no power to stop it on the grounds of who was going to occupy it.”
Ken Livingstone, who also backed the scheme when he was mayor of London, said he had no idea so many foreign buyers would be seeking to deposit money in London property.
He described the international buy-up as appalling. “I was very keen to get foreign investment into London, but that was in terms of constructing developments and creating new jobs, not flogging them off to people who just keep them there in case there is a coup and they have to flee,”
That was all back in spring 2016.
But you can’t blame the builders
Builders are commercial organisations who exist to make a profit. Obviously, they will get a better return building posh flats for foreigners than budget homes for working-class families.
Indeed there was a report in 2016 from the House of Lords Select Committee of Economic Affairs on ‘Building more Homes’ which concluded that it was inappropriate to rely on private sector builders to solve the housing crisis. If nothing else, it is against their commercial interests to do so.
So what about a ban?
Bearing in mind the comments of John Prescott and Ken Livingstone above – would a ban on foreign investment have helped keep London housing to house Londoners?
For example, New Zealand was in the news recently as the government there is looking to ban foreigners buying property in an attempt to ‘cool soaring property prices’.
Reports also indicate that a ban on foreign investment is being considered in Vancouver and there are limits on property purchase by non-residents in other countries such as Australia and Switzerland.
Surely banning foreign ownership of British, or at least London, homes by non-residents would help solve the problem?
This may also, maybe resolve some of the issues raised by the Paradise Papers about schemes with offshore companies owning property to avoid paying tax.
It sounds obvious.
The arguments against the ban
Mind you when searching around on the internet I came across this article in the Daily Mail which argues that a ban on foreign buyers would be bad because:
overseas investors often buy off-plan, providing the much needed advance finance needed by developers to get projects off the ground.
Without the finance, the developments do not get built, and this could reduce the supply of new homes. This could, in turn, lead to pushing prices further out of reach of first-time buyers.
The article also commented that a ban could appear racist or ‘little Englander’. Presumably, it is not something we would be able to do anyway until we are outside the EU, after Brexit.
Then this article in the Economist tells us that the problem is really just limited to high-valuee areas in cities such as London
I also couldn’t help noticing, when I had a quick flick through the London Mayors website that despite his criticism of ‘golden bricks’ for foreigners in 2016 there do not seem to be any immediately apparent plans to prohibit them. Maybe he has thought the better of it?
Now I’m not an economist or a tax lawyer so am not really qualified to say whether a ban would be good or not. It sounds like a good idea (and they do it in Switzerland) but as we have seen, there are arguments against it plus – is the problem really that serious? Outside posh areas of London that is.
I would really like to know what YOU think about it all. What’s your view? Is it a good or a bad idea?
And if it’s a good idea, what should we do about it?